Incident: The company released its 2024 three-quarter report. In the first three quarters, revenue was 27.52 billion yuan, -9.1% YoY; net profit to mother was 8.58 billion yuan, -15.9% YoY. Looking at a single quarter, 24Q3 achieved revenue of 4.64 billion yuan, or -44.8% YoY; net profit to mother was 0.63 billion yuan, or -73.0% YoY. The company's performance fell short of expectations.

Deeply adjust and organize channels to save energy for future long-term development. 1. By product: 24Q1 Haizhiblue/Dream 6+ is growing faster; 24Q2 Dream 6+ factory price increases, continuing to lead brand momentum; against the backdrop of weakening sales in 24Q3, the company actively adjusted and slowed down repayment requirements. The company focuses on product structure upgrading, continues to promote structural optimization of product lines such as Sea, Sky, and Dream, and continues to shape the brand through the “vintage wine” concept of the Dream Blue Craft Course. Sea Blue has performed steadily in markets outside the province and continues to benefit from the upward upgrade dividends of low-end products. 2. Looking at each channel, the company has basically completed sorting out the organizational structure, incentive system, channel model and brand sequence, continuously promotes integrated manufacturer construction, improves dealer classification and hierarchical management and dealer service measures, and stabilizes and enhances dealer confidence. 3. By region, competition within the province is currently intensifying pressure. There are fewer new arrivals in many places, and the decline is even greater. The situation outside the province is slightly better than within the province. The company focuses on the provincial market, the highland market and model markets outside the province, and further expands nationalization to lay the foundation for medium- to long-term development.

Expense rates have risen across the board, and profitability is under pressure. 1. The gross margin for 24Q3 was 66.2%, -8.6pp year on year. The decline in gross margin was mainly due to a decline in product structure under the influence of the external environment. Products above Dream 3 and Dream 6+ were more impacted by the downturn in the boom. 2. The 24Q3 sales expense ratio was +12.3pp to 27.8% year over year, and the management expense ratio was +4.3pp to 10.3% year over year. The main reason was that the company continued to increase its investment efforts, continued activities such as buyout raffles, code scanning red envelopes, etc., and provided channel fee support. 3. The net interest rate for 24Q3 was 13.6%, -14.2pp. Due to lack of revenue scale support, the impact of the expense ratio on net interest rate increased, and the downward product structure+rigid fee investment led to a sharp decline in profit levels. 4. Net cash flow from operating activities in 24Q3 was 1.41 billion yuan, -65.3% year over year; contract debt was 4.97 billion yuan, a year-on-year decrease of 0.55 billion yuan (-10.0%), and an increase of 1.03 billion yuan (+26%) over the previous year.

Hold high and strengthen the brand and wait for the economy to improve. 1. On the brand side, highlight the expression of quality, amplify the scarce value of old wine, hold high standards for brand building, strengthen the high-end brand building of the Dream Blue Craft Course, and set a benchmark for high-end liquor brand value. 2. On the marketing side, adhere to strategic focus and resource focus, focus on the provincial market, highland market and model market outside the province, and expand nationalization in depth. 3. On the management side, strengthen inventory management of basic market work, improve multiple market work standards, strengthen business guidance and implementation of responsibilities, and promote deeper channel infrastructure construction. 4. Looking ahead to Q4 and next year, the company will continue to accelerate the development of clear ideas, continue to slow down inventory digestion during the Spring Festival and the coming year, and look forward to operational improvements after inventory digestion.

Profit forecast. EPS is expected to be 5.71 yuan, 5.58 yuan, and 6.10 yuan respectively in 2024-2026, and the corresponding PE is 14 times, 14 times, and 13 times, respectively. The company continues to promote deep nationalization and product structure upgrading, and is optimistic about the company's long-term growth capacity.

Risk warning: There is a risk of a sharp economic downturn, and the recovery in consumption falls short of the expected risk.